• A rewrite of the pension transfer analysis system requiring the introduction of a "transfer value comparator", which should be used with some form of cash flow modelling. This I think signals a concern that advisers are focusing too much on critical yield through transfer value analysis system (TVAS). It follows on from the FCA announcement published in January.
• As a result of this, TVAS is to be dropped and replaced by something called appropriate pension transfer analysis (APTA), which will allow advisers more flexibility to model potential income scenarios.
• In addition, APTA there will be a mandated transfer value comparator (TVC), which tells you how much above the transfer value you would have to pay to replace the income being given up in the annuity market – annuities being the proxy for a guaranteed income.
• There will also be more of a focus on where the money is being invested and, by definition, the chances of meeting the income levels specified in the cash flow model.
AJ Bell has long called for the removal of the regulatory presumption that all transfers should be unsuitable, preferring that all transfers should be considered on their merits and on a level playing field. The hope being that such a regime would encourage more advisers to develop services in this area, with less fear of retrospective regulatory concern when they advise on taking action against a regulatory presumption.
I am not sure whether this has really changed – although the presumption has gone, the starting point is still that most people would be best off staying in the DB scheme. In effect there is still a starting position and I am not sure this has removed the threat of retrospective regulatory attention.
Call for change
AJ Bell has also called for a revision of the transfer value analysis (TVA) assumptions. In these days of pension freedoms and with the growth of income drawdown, it appears that the proposed transfer value comparator (TVC) could well share the same flaw as the current TVA. They both have annuity rates at their core when annuities are not relevant to what the customer is trying to achieve. If they wanted a guaranteed income they probably would not be considering a DB transfer in the first place.
One suggestion might be to project the income that can be generated from the transfer value from normal retirement age, using sensible growth rates and a standard table of sustainable income drawdown rates and then compare this level of income with that being foregone.
The detail in the consultation is a good start, but I would also suggest something of a missed opportunity given the way the market is naturally evolving.
